Everyone wants to reform the nation's healthcare system. The main problem is that the US healthcare bill keeps rising faster
than the economy, with little to show in terms of higher quality of care. Recent analyses by the Centers for Medicare and
Medicaid Services (CMS) and the Congressional Budget Office (CBO) indicate just how difficult it is to make a dent in healthcare
expenditures, even with a record slowdown in outlays for prescription drugs.
Last year, CMS projected that the nation will spend $2.6 trillion for healthcare in 2009, which equals 17 percent of gross
domestic product. Under current policies, that amount is projected to rise to 20 percent of GDP by 2017, and nearly 50 percent
in 2082, according to the CBO reports, "Key Issues in Analyzing Major Health Insurance Proposals" and "Budget Options on Health
Care" (available at
http://www.cbo.gov/). Annual healthcare spending will increase from $8,300 per person today to $13,000 by 2017, and federal outlays for Medicare
and Medicaid will grow from $720 billion to about $1.4 trillion by 2019. The number of uninsured people is projected to rise
from 45 million today to about 54 million in 10 years because health insurance premiums will increase much faster than income,
making coverage more difficult to afford.
One bright spot on the healthcare horizon is a slowdown in expenditures for prescription drugs. In 2007, the growth rate for
spending on drugs hit a 45-year low, according to the CMS Office of the Actuary. Outlays rose only 4.9 percent, to $227.5
billion—that's a little more than half the 8.6 percent rise in 2006, and the slowest rate of growth since 1963.
However, this development carries little good news for pharma companies as increased utilization of cheaper generic drugs
drove the decline. Generics accounted for 67 percent of drugs dispensed in 2007 (up from 63 percent in 2006 and 60 percent
in 2005) as more blockbuster drugs went off patent, six-month exclusivity periods expired, and formularies set higher copays
for branded products.
Doughnut Hole: Too Big?
Wider use of generics and retailer discount programs have also curbed total drug prices, which rose a paltry 1.4 percent in
2007—even less than the 3.5 percent price increase in 2006. Brand name drug prices increased at a higher rate, but less than
in previous years. CMS also noted that drug utilization declined in some therapeutic areas due to concerns about drug safety,
as the proliferation of black-box warnings from FDA discouraged prescribing of certain medicines. Fewer blockbuster drugs
coming to market further reduced the number of products able to command premium prices.
CMS statistician Micah Hartman noted that the slowdown in drug outlays was "one of the major factors driving down overall
healthcare spending growth in 2007." Total expenditures for healthcare increased only 6.1 percent in 2007, to $2.2 trillion,
the smallest increase since 1998.
The Push for Biosimilars
Analysts predict that savings from generics could be extended by promoting competition for biotech therapies. CBO calculations
support such a move, projecting $9.2 billion in government savings over 10 years from an abbreviated pathway for FDA approval
of follow-on biologics (FOBs). CBO assumes a 12-year exclusivity period for brand-name products and limited requirements for
duplicating innovator clinical trails. Medicare would save the most, but other government health programs could also gain
from access to less costly therapies.
The savings would be even greater—about $12 billion over ten years—if CMS also revised billing codes for biologics administered
by physicians under Medicare Part B. Placing an FOB in the same billing code as a brand-name counterpart allows CMS to reimburse
physicians based on a weighted average of the prices paid to all manufacturers in the group. Doctors who dispense less expensive
FOBs thus can retain the difference between product cost and Medicare payment, while those who prescribe more expensive brand-name
products would face a financial penalty.